Category Archives: Market inefficiencies

Real Estate Appraisers Pressured to Give Higher Valuations

Another sign of the times: appraisers are routinely prodded to sign off on a higher price than they are inclined to, but arm-twisting or bribery by the seller is becoming pervasive. National Appraisal Survey found that 90% of 1200 participants felt pressured to change their reports, up from 55% in 2003. In addition, there is […]

"The Market for Lemons" and Its Implications

An article by Bruce Schneier in Wired Magazine, “How Security Companies Sucker Us With Lemons,” which we found thanks to Slashdot, discusses the work of Nobel Prize winning economist George Akerlof on markets with asymmetrical information: Why are there so many bad security products out there? It’s not just that designing good security is hard […]

Now It’s Official: Hedge Funds Deliver No Alpha

Ha. We were suspicious in back in 2005 when Edhec-Risk, an asset management research company, issued a report, “Hedge fund industry: is there a capacity effect?” which examined whether various hedge fund strategies were becoming too crowded for the managers for the managers to earn excess returns. And excess return (meaning earning more than the […]

Health Care Reform Proposals: Still Off the Mark

Mark Thoma has a good post about the discussion on Hamilton Project director Jason Furman’s health care proposal, which in a nutshell argues that the way to lower health care costs is to have consumers bear more of the costs. That’s the thinking behind Health Care Savings accounts,but Furman tweaks the idea, deeming the original […]

Market Failure I: "Money-Driven Medicine"

I always take note when a writer takes a position that is contrary to his usual stance. Tyler Cowen of Marginal Revolution is an intelligent and thoughtful commentator, but hews too closely to free market orthodoxy for my taste. But his review of Maggie Mahar’s Money- Driven Medicine, a hard-hitting critique of health care, American […]

Market Failure II: Corporate Bankruptcy

In her Sunday New York Times column, “‘For Sale’ May Mean ‘You Lose’,” Gretchen Morgenson notes in passing that bankruptcies don’t get as much attention as sexier mergers or IPOs (and it’s confirmed by the dearth of comment on the usual suspect sites in the blogsphere). But there is a lot of money made in […]

A Bit of a Rant on Free Trade

Ah, but it’s a good rant, colorful and defensibly reasoned, by Angry Bear reader OldVet, “Taking the other side of Trade – what’s free and what’s not.” He makes a valid core observation: free trade hasn’t delivered the goods (at least for the US) that it was alleged to, and that is at least in […]

Is Alpha All It’s Cracked Up to Be?

Supposedly, the reason that sophisticated investors like pension funds and endowments pay 2% management fees and 20% upside fees (and sometimes more) to hedge funds and private equity funds (and higher-than-index-fund fees for long equity managers) is that they are buying “alpha,” which is the manager’s ability to beat the relevant market. (To be more […]

Robert Shiller on Market Declines, Particularly the Latest

We found Yale economist Robert Shiller’s article, “Fears, Not Facts, Drive Global Markets,” thanks to Economist’s View. As much as we agree with Shiller’s conclusion (as author of the book “Irrational Exuberance,” he is considered an expert), that the size and seeming suddenness of market declines can feed on themselves, we don’t agree with the […]

"When to Violate the Top Two Commandments of Antigovernment Crusaders"

This article by Robert Franks, a Cornell economist, in today’s New York Times gives several simple but compelling examples of how conservative ideology is internally inconsistent. Conservatives like to claim that keeping government small is pro growth and makes us all better off, at least in a financial sense, by giving us a bigger economic […]

Appetite for Risk Makes it Easy for Private Equity Funds to Overleverage Companies

I trust readers don’t mind the high proportion of Financial Times stories today. You’ve probably figured out that the FT often runs stories that don’t get reported in the US. While the title of this post is a bit of a mouthful, the concept is pretty simple. As you know, the pricing of risky credit […]

Study Recommends Carbon Tax over "Cap and Trade"

As we’ve noted, Wall Street firms have been investing in various means of profiting from likely future regulation of carbon emissions, particularly carbon trading. A study by Dr. Robert Shapiro, undersecretary of Commerce in the Clinton Administration (which we found thanks to Greg Mankiw’s blog), concludes that carbon taxes would be more effective than emissions […]

Shortcomings of Prediction Markets and Markets Generally

Barry Ritzhold of the Big Picture has had a run of posts lately on topics near and dear to my heart. He has written before on the subject of prediction markets, and his latest comment, on a particularly wrongheaded story in the New York Times, makes some important observations about markets in general. This topic […]